Paratek absorbs the troubled Transcept in a reverse merger

Long since shelving an attempt to go public, antibiotics developer Paratek Pharmaceuticals has signed a deal that will give it a Wall Street debut after all, planning a reverse merger with the struggling Transcept Pharmaceuticals ($TSPT) and picking up a $93 million investment along the way.

The deal is structured so that Transcept is, at least on paper, acquiring Paratek, an arrangement designed to maintain the former's Nasdaq listing. Under the agreement, Paratek will become a subsidiary of the current Transcept, with Paratek shareholders trading their stakes for about 89.6% of the combined company. Once the acquisition wraps up--expected in the second half of the year--Transcept will change its name to Paratek and switch its ticker symbol to "PRTK."

Pending shareholder approval, the combined company will set out with $93 million in fresh cash to advance its pipeline of antibiotic treatments, money provided by new and returning investors including Abingworth, InterWest Ventures and Aisling Capital.

With money in the bank and access to public markets, Paratek plans to move forward with lead candidate Omadacycline, an oral and intravenous treatment for bacterial infections. The company has the FDA's blessing to start two Phase III trials of the treatment in acute bacterial skin and skin structure infections and community-acquired bacterial pneumonia, and the new financing will fund those studies and bankroll research into Omadacycline's potential in urinary tract infections, Paratek said.

Abingworth partner Michael Bigham will take the reins of the post-merger Paratek, and all of Transcept's executives will resign upon completion of the agreement, the company said.

The deal marks the end of the road for Transcept, which cut 43% of its staff last year and said in December it would liquidate its operations if it couldn't find a buyer. The biotech's slow trip to the bottom was marked by squabbles among investors and the rejection of a $4-a-share offer from Retrophin ($RTRX), hedge fund veteran Martin Shkreli's drug developer.

Transcept had successfully developed the insomnia drug Intermezzo, picking up FDA approval in 2011, but the treatment never managed to crack an Ambien-dominated market, and, after years of lagging sales, commercialization partner Purdue is no longer pushing the pill. Transcept's other asset, the preclinical acute migraine treatment TO-2070, is yet to attract any interest from would-be licensers.

Departing Transcept CEO Glenn Oclassen said melting into Paratek creates the best value for his company's shareholders, who will hold a 10.4% stake in the combined outfit. They're also due a post-closure cash dividend, plus proceeds from any potential sale of Intermezzo or TOP-2070 within 24 months, he said.

Transcept's shares jumped about 30% in premarket trading on the news, trading at around $2.50.

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